< Previous8 JULY 2018 SI T E S E L E C T IO NEditor’s Note: This article was developed from the Distribution Interest Group program of the IAMC Spring 2018 Savannah Professional Forum. The speaker was Bill Luttrell, Director of Corporate Real Estate, Werner Logistics.OverviewRisk is everywhere. Thinking about risk requires defining it, having a strategy for managing it, and taking it into account at every stage of the real estate lifecycle. This starts with creation of the distribution strategy and includes site selection and acquisition, management, and disposition. By strategically identifying and managing risks, companies can avoid and mitigate distribution risks that could negatively affect the business. Companies can also determine which risks they can tolerate and are worth taking. The outcome is a better return on corporate real estate investments and better overall business results.There are numerous risks that affect distribution.For companies where distribution plays an important role, risk is everywhere. It is important for companies to define risk, deal with it up front in creating the company’s strategy — both the overall business strategy and the distribution strategy — and consider risks in site selection, acquisition, portfolio management, and disposition.Some of the high-level distribution activities that involve a great deal of risk are:• The lengthening of supply chains• Not having addressed risks in the organization’s distribution strategy• Dealing with mostly inherited supply chain footprints.Other key risks, among many, include labor concerns, political risks, compliance issues, and cybersecurity. In defining risk, Bill Luttrell suggested considering:• Risk taking• Risk avoidance• Risk tolerance.An additional way to think about risk is as strategic, tactical, or operational.Addressing distribution risks starts with focusing on the distribution strategy.Before selecting a distribution strategy a company needs a market strategy. The distribution strategy then needs to align with and support the overall market strategy. This isn’t always the case, which results in excessive costs and risks. Traditionally, there has been a great amount of capex overspend in distribution networks.Key elements of the distribution strategy include:• Network design • The inventory strategy and the exit strategy • Capacity utilization • Servicing the last mile• Redundancy options• Reverse logistics and returns.Companies must consider several important risks in making site selection decisions.There are several major criteria that come into play in making site selection decisions. For manufacturing sites, labor is the key factor. For distribution sites, logistics is the most important criterion. When searching for a new distribution facility it is important to first perform a logistics analysis to be sure that the new facility is going to improve the supply chain footprint, as logistics is connected to the supply chain.Seeking international distribution and manufacturing sites adds additional risks. Unique international risks include economic and political stability, corruption and protection of intellectual property. Political risk insurance (PRI), which is frequently purchased by large multinational companies, can help mitigate this risk.Strategies exist for mitigating risks during the acquisition stage.The most important way to mitigate risk during acquisition is through rigorous due diligence, which involves a thorough assessment of the market, including comps, vacancy rate, CAP rate, and more. Specific mitigation strategies vary based on the decision to lease or own.Once a company has assets, it must manage them as a portfolio. After developing a distribution strategy, selecting sites, and engaging in acquisition and construction, a company will have a portfolio of industrial assets. To reduce risks, companies must engage in portfolio risk mitigation, through portfolio management. This is a holistic process that involves measuring, assessing, evaluating, and then managing by making changes in the footprint. To mitigate risks associated with disposition, plan ahead. The best way to manage disposition risks is to plan ahead by having the exit strategy in mind even when selecting a site or doing an acquisition. Other steps in mitigating disposition risks include:• Conducting a stay/go analysis, with an eye toward disposition• Knowing the market, which is as important on the back end as on the front end• If it is an investment grade facility, being sure it is leased up before attempting to sell it to an investor• Having reserves on hand to increase exposure if possible.Corporate Real Estate Management – The Risk Factor10 JULY 2018 SI T E S E L E C T IO NEditor’s note: This article was developed from a workshop program of the IAMC Spring 2018 Savannah Professional Forum. The speakers were Jack Rizzo, Managing Director, Global Construction & Development Services, Prologis; and Kati Marwitz, Director, Strategic Market Development, Kahua.OverviewPrologis, a global real estate investment trust based in Colorado, faces challenges managing construction projects and assets across 19 different countries. To solve their problems, Prologis implemented Kahua software, a collaborative network for real estate and construction project management. Kahua has given Prologis greater visibility into its projects, allowing the company to be more efficient and consistent from project to project.Tracking information on numerous global construction projects has been a challenge for Prologis.As a global real estate investment trust with a fairly expansive land bank, Prologis has 60 to 70 construction projects in process around the world at any given time. Tracking the information about these projects has become increasingly challenging.Prologis needed to gain greater visibility into current construction projects, as well as use information about these projects to forecast construction costs. As the long-term owner of these assets, Prologis also needed to ensure consistency across projects, both in design and development.Kahua provides real-time visibility for real estate and construction management.Prologis turned to Kahua for real-time visibility into their projects and assets throughout the capital asset lifecycle. This includes visibility into project status, consistency and best practices and project costs. Kahua also offers Prologis information for the post-construction operations side of the business, including specifications, equipment lists and as-built drawings.Data analytics helps Prologis look beyond the current state of projects. Using data from current projects, Prologis can forecast the costs of facilities in coming years, which helps the business more accurately develop its rolling three-year budget.Kahua offers visibility throughout the capital asset lifecycle.Kahua simplifies collaboration and data sharing.Collaboration within and outside of the business is made easier with Kahua. For example:• Outside contractors can enter bid data. This simplifies the bid process, allowing Prologis to electronically gather all bids in a central location so they can quickly identify the lowest qualified bidder.• Executives can view a dashboard in Kahua that is customized to provide the information they need. From this dashboard, they can dive deeper into information they find interesting.• Business systems can share information with Kahua, as long as application programming interfaces (APIs) are available. At Prologis, Kahua is integrated with the account system (PeopleSoft) and the property management system (Yardi) so that information can be viewed from a single system.This ability to share information between systems is a change for the construction and real estate management industries, where, today, users often are required to log into another business’s system and navigate their processes.How Collaborative Technology Is Transforming Site Development and Constructionwww.iamc.org“There’s a lot of information we had in different silos throughout the company. Kahua gave us the ability to consolidate that into one place where people go for building information.”— Jack Rizzo12 JULY 2018 SI T E S E L E C T IO NNORTH AMERICAN REPORTSby G ARY DAUGHTERSgar y.daug hter s @ site s ele c tion.c omCourt Sides With States Over E-commerceInternet retailers sustained a blow when the Supreme Court ruled in June that they can be required to collect sales taxes in states where they have no physical presence. The ruling in South Dakota v. Wayfair overturns a 1992 precedent effectively barring states from collecting such taxes. Brick-and-mortar businesses have complained that the precedent puts them at a competitive disadvantage, and states have lamented the loss of billions of dollars in tax revenues. South Dakota is one of 31 states that currently have laws taxing internet sales. “This ruling is not a blank check for the states,” said Joseph Bishop-Henchman, executive vice president at the Tax Foundation. “The Court speci cally observed that South Dakota’s law, and its tax laws generally, minimizes the burden on interstate commerce. Other states should craft their laws accordingly.”1312Improvements to Savannah HarborCapital Development Partners in June broke ground on a $125-million, 2.3-million sq.-ft. (213,677-sq.-m.) logistics campus to meet the needs of import, export and e-commerce customers of the Port of Savannah. The 190-acre (77-hectare) campus in suburban Pooler will offer dual rail service, transload capability and more than 2,000 container storage positions. “The Savannah Port Logistics Center is the most signi cant industrial and logistics development in the Southeast,” said John Knox Porter, Capital Development Partners CEO. “Our facilities and infrastructure will provide a signi cant advantage for our customers.” Additional federal funding for the ongoing Savannah harbor deepening, to be completed in 2021, was recently included in the U.S. Army Corps of Engineers 2018 work plan.Capital Development PartnersDFW Hooks up with LondonA new partnership agreement will expand trade and investment ties between the Dallas-Fort Worth region and London. The agreement was signed in late June in London during a trade tour by the Dallas and Fort Worth mayors. According to the announcement, the agreement will more closely link the two economies and help high-growth companies hoping to expand from one region to the other. DFW Hooks up with LondonA and London. The agreement was signed in late June in London during a trade tour by the Dallas and Fort Worth mayors. According to the announcement, the agreement will more closely link the two economies and help high-growth companies hoping to expand from one region to the other. Map courtesy of Tax Foundation 31 STATES TAX INTERNET SALES WITHOUT PHYSICAL PRESENCEPhysical PresenceNew York-style “click-through” NexusColorado-style notive-and-reportingAlabama-style Economic NexusNo State Sales TaxSouth Dakota-style threshold LawCookie Nexus2 S I T E S E L E C T I O N JULY 2018 13543Ford Bets on DetroitHaving devolved from icon to eyesore, hulking Michigan Central Station will nally get the renovation Detroiters have long awaited. In late June, Ford Motor Company announced plans to redevelop the 105-year-old building in the city’s Corktown section as part of its plans for an urban campus focusing on autonomous vehicles. Shuttered since 1988 when the last train departed, the once-ornate structure was left to vandals and thus became a poignant symbol of Detroit’s parallel decline. In addition to being used by Ford workers, the converted structure, says Ford, will include community space, retail and housing. “Michigan Central Station is a powerful symbol of Detroit’s struggles and now its resurgence, but Ford’s investment in Corktown is far from symbolic,” says Bill Ford, the company’s executive chairman. “We aren’t just making a bet on Detroit. We are making a big bet on the future for Ford and the future for transportation.”Atlantic Unity Proposed in CanadaCanada’s Atlantic Provinces are missing out on more than C$8 billion in GDP due to interprovincial trade barriers, asserts a new report by the Atlantic Provinces Economic Council (APEC), APEC — which represents New Brunswick, Nova Scotia, Newfoundland and Prince Edward Island — is proposing an Atlantic Regulatory and Cooperation Agreement (ARC), designed to solidify the region’s commitment to regulatory reform and to reduce unnecessary barriers to economic activity. Interim APEC CEO David Chaundy told journalists June 19th that “overall progress has been slow.” The APEC proposal lays out a 10-year plan for dealing with regulatory issues including labor standards, corporate registration, occupational health and safety, and education.5Photo courtesy of Tourism New BrunswickDetroit rapper Big Sean performs in June outside Michigan Central Station as part of festivities to celebrate Ford’s acquisitionof the station in Detroit’sCorktown neighborhood. Photo courtesy of Ford Motor Co.416JULY 2018SI T E S E L E C T IO NSignsPositiveon theHorizonEl Campo is not on the border. But the Texas town halfway between Houston and Victoria is on the edge of a booming future, as it hosts a new project with border-driven commerce fully in its sights.In June, Atlanta-based Stonemont Financial Group and Ridgeline Property Group, Class I binational railroad Kansas City Southern Railway (KCS) and NAI Partners broke ground in El Campo on the SW International Gateway (SWIG) Business Park, where they hope to see up to million sq. ft. of Class A warehouse, manufacturing and rail-served distribution facilities at full capacity.Situated along nearly two miles of frontage on US /I- — the NAFTA Superhighway — the park represents what Zack Markwell, CEO and managing principal of Stonemont Financial Group, called “a strategic opportunity for businesses that ship goods between the United States and Mexico.”Key features include a staging area for more than rail cars; a U.S. Foreign Trade Zone; six Texas ports within miles; and the ability to deliver build-to-suits within months of an executed lease. KCS also has unique rail access, via Kansas City Southern de Mexico (KCSM), to the Port of Lazaro Cardenas on Mexico’s Pacific coast, where facility investment and business is finally ramping up as an alternative to the frequent congestion encountered at other West Coast ports, following the opening of APM Terminals’ $-million terminal there last year.KCSM serves northeastern and central Mexico and the port cities of Lázaro Cárdenas, Tampico and Veracruz (which in surpassed the -million mark in vehicle processing for the first time, up by a dramatic percent from , in ), and has a percent interest in Panama Canal Railway Company, providing ocean-to-ocean freight and passenger service along the Panama Canal.Market ‘Hotter Than a Firecracker’Steve Pastor is vice president, global supply chain & ports/rail, for NAI James E. Hanson and national chairperson for NAI Global’s Industrial Council. In addition to decades of experience in the NAFTA industrial market, he also brings to the table a travel schedule logging between , and , miles a year. So he knows whereof he speaks when he tells me, “ e industrial market is hotter than a firecracker.”He says the El Campo project’s location outside of the Houston but within a few hours of Laredo puts it outside the congestion zone but close enough to offer critical industrial rail park options.“When companies are looking,” he says, “one thing on the checklist is they don’t want to be near congestion. Traffic costs time and money.”“KCS continues to hear customers discuss warehouse space availability, rising cost concerns, and limitations in the class A availability of warehousing in the border area of Laredo, Texas,” says C. Doniele Carlson, KCS assistant vice president of corporate communications & community affairs. “Many of those customers are focused on finding solutions for southbound and northbound shipments in and out of Mexico, but are not necessarily tied to using a border town location for storage and distribution.”U.S.-MEXICO BORDER CORRIDORIndustrial projects aimed at U.S.-Mexico commerce will unite instead of divide.Image: Getty ImagesS I T E S E L E C T I O N JULY 2018 17Many customers are focused on fi nding solutions for … shipments in and out of Mexico, but are not necessarily tied to using a border town location for storage and distribution.”— C. Doniele Carlson, Kansas City SouthernSignsPositiveon theHorizonPastor says his advice to all railroad clients is simple: “If you have had land since Washington crossed the Delaware and you haven’t used it, you probably don’t need it.”Instead, he says, they can sell off parcels and create profi t centers in partnership with developers.“KCS is a perfect example,” he says, as it sought out a developer partner to work hand in hand to build a rail park to service clients moving cargo to and from Mexico. “ ey were ahead of the curve.”And demand for heavy rail use? ere’s plenty of that.“Houston is very congested, so this will help,” says Pastor, “and you’ll be able to service Austin, San Antonio, Houston. ere are clients right now bringing stuff up from Mexico, going to Dallas, and trucking back to Houston. How does that make sense? It doesn’t. People will be stacked up like planes coming into Atlanta, wanting to be in this park.”Among the reasons are rising concerns about trucking availability and theft, says Carlson. A shift to rail, combined with KCS and KCSM working as a single rail line network connecting the two nations’ markets, presents an opportunity for all.“Many shippers moving products northbound from Mexico have to seasonally adjust trucking volumes due to the fruits and vegetables industry,” Carlson notes. “ e erratic truck availability causes uncertainty in the supply chain for some of our customers. With levels of product inventory being historically lower than previous years, the margin for error in timing of deliveries becomes a major customer concern. Customers wanting to convert freight from truck to boxcar from Mexico to the SWIG business park can resolve their equipment inconsistency and gain a reliable option to manage their inventory fl ow.”Coordinating Customs e railroad is also working with federal authorities on both sides of the border to expedite that fl ow. Recently, U.S. Customs and Border Protection (CBP) senior management, together with counterparts from Servicio de Administracion Tributaria/Aduana Mexico, KCS and local Congressional and municipal representatives, gathered in Laredo to dedicate a processing building that will greatly help to facilitate CBP/SAT joint rail operations in Laredo. e port of entry there experienced a .-percent increase in northbound rail traffi c growth in .Meanwhile, investment in infrastructure on the southern side of that border continues to pay dividends.“Mexico continues to be a growth generator for KCS,” says Carlson. “ e millions of dollars in infrastructure investment that KCS has made over the past several years continues to provide opportunities.” Industrial projects aimed at U.S.-Mexico commerce will unite instead of divide.Next >